Richmond Fed Interview

The Richmond Fed published a long interview with me in their Econ Focus, shorter pdf (print) version here and longer web version here. Some of the questions:

• Does the 2010 Dodd-Frank regulatory reform act meaningfully address runs on shadow banking?
• So what do you think is the most promising way to meaningfully end "too big to fail"?
• Do you think there's any reason to believe recessions following financial crises should necessarily be longer and more severe, as Carmen Reinhart and Kenneth Rogoff have famously suggested?
• Many people have asked whether the finance industry has gotten too big. How should we think about that?
• What are your thoughts on quantitative easing (QE) — the Fed's massive purchases of Treasuries and other assets to push down long-term interest rates — both on its effectiveness and on the fear that it's going to lead to hyperinflation?
• Both fiscal and monetary policies have been on extreme courses recently. What are your thoughts on how they might affect each other as they move back to normal levels?
• Switching gears to finance specifically, what do you think are some of the big unanswered questions for research?
• You wrote an op-ed on an "alternative maximum tax." What’s the idea there?
• Can transfers really help the bottom half of the income distribution?
• Which economists have influenced you the most?

You'll have to click to the interview for answers!

Thanks to Aaron Steelman, Lisa Kenney and especially  Renee Haltom, who helped a lot with the editing. I'm a lot less coherent in person!

Healthcare tidbits

Tidbits that came in following my WSJ oped last week

1. I heard from a lot of people in the burgeoning market for cash only transparent service. Maybe the internet will undercut the current non-competitive system! Some nice links:

http://selfpaypatient.com/ A blog devoted to self-pay patients and doctors.The first post is cool -- why passing laws to force price transparency won't work.

http://www.amazon.com/The-Self-Pay-Patient-Affordable-Healthcare-ebook/dp/B00HBUPLFG/ The e book. Haven't read, looks interesting.

http://surgerycenterofoklahoma.tumblr.com/ Dr. Keith Smith, of Surgery Center of Oklahoma, who I wrote about last week, has a nice tumblr.

 www.regencyhealthnyc.com.  An interesting direct cash pay pricing surgical clinic

2. The "last embassy" blog points out a curious feature of Obamacare: you need a credit card or bank account -- plus internet connection -- to sign up. That's a bit of a problem for poor uninsured people supposedly the beneficiaries of this system. I do sense a bit of a disconnect between the people who designed Obamacare, and the intended beneficiaries -- who don't have a computer, high speed broadband, strong internet skills, credit card and bank account, and who shop (like all of us) by word of mouth. ("They have no computers? Let them use their ipads" a modern Marie Antoinette might say)
http://thelastembassy.blogspot.com/2013/05/the-aca-and-unbankable-or-steve-miller_22.html

3. Cato's Michael Cannon produced an extraordinary comprehensive listing of Adminstration executive orders on Obamacare. I salute Michael's patience to slog through this. Get to the excellent last two paragraphs.
http://www.forbes.com/sites/michaelcannon/2013/12/27/as-predicted-obamacare-plunges-into-utter-chaos/

4. Media. I did a few interviews following the WSJ oped

Fox
http://video.foxbusiness.com/v/2976885479001/the-steps-to-fixing-obamacare/

CNBC's Kudlow report
http://video.cnbc.com/gallery/?play=1&video=3000231610

Not very enlightening, really.

5. Hilarious tidbit. I know, it's hard to clean up websites.

http://www.whitehouse.gov/realitycheck/3

What to do when Obamacare unravels

Wall Street Journal Oped December 26 2013.

The unraveling of the Affordable Care Act presents a historic opportunity for change. Its proponents call it "settled law," but as Prohibition taught us, not even a constitutional amendment is settled law—if it is dysfunctional enough, and if Americans can see a clear alternative.

Source: David Gothard, Wall Street Journal

This fall's website fiasco and policy cancellations are only the beginning. Next spring the individual mandate is likely to unravel when we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance. The employer mandate and "accountable care organizations" will take their turns in the news. There will be scandals. There will be fraud. This will go on for years.

Yet opponents should not sit back and revel in dysfunction. The Affordable Care Act was enacted in response to genuine problems. Without a clear alternative, we will simply patch more, subsidize more, and ignore frauds and scandals, as we do in Medicare and other programs.

There is an alternative. A much freer market in health care and health insurance can work, can deliver high quality, technically innovative care at much lower cost, and solve the pathologies of the pre-existing system.

Hope for healthcare?

"Can this Man Save Health care?" is another nice article about Dr. Keith Smith, founder of the Surgery Center of Oklahoma (SCO) in Oklahoma City. (Previous blog post here.)  He is trying the audacious, running a low-price hospital with prices posted on the web -- the Southwest Airlines of hospitals that I've been hoping for.

Chris Demuth on Obamacare

Source: Weekly Standard

I found a nice Obamacare essay by Chris Demuth, "The Silence of the Liberals: Obamacare is Inimical to Their Values Too," in the Weekly Standard.

The point: Liberals ought to join in the project of constructing a market-based alternative to Obamacare.  We do, in fact, have the same goals, and the question is simple cause-and-effect of what policies will actually produce those goals.

A few highlights with comments (but read the whole thing). We start with a quick reminder of the unfolding train wreck:

Obamacare will never achieve its promise of affordable health care for all paid for with improved efficiencies in health insurance and medical care. ...the program improves “access” mainly by herding millions of people and firms into insurance they do not want or need. A great many will simply refuse, having little to fear for the time being, with the result that government expenditures will be far higher than projected. It is equally clear that the variety and quality of medical care will be seriously restricted for all concerned.

"Liberals" may not care about expenditures, but surely ought to worry on the last point.

The charge "you have no alternative" is false:

...many prominent Republicans and conservatives​...[and libertarians]...​have come forward with specific proposals for expanding affordable health care more than Obamacare does, while eliminating its many harmful and unworkable features. 

This is an important point. The alternatives will advance "liberal" values, and give people of modest means better care at lower cost than Obamacare. They "go further and aim higher."  This is not the usual narrative of "people need" government help vs. stingy budget hawks. This is about a better way to achieve the same goals-- and more.

Learning the wrong lesson while waiting on hold

Health care policy debates seem to have become a war of anecdotes. Margaret Talbot of the New Yorker posted one titled "My canceled policy and my values" which is circulating the blogoshphere

... like many of the twelve million or so Americans who buy their own insurance, we received a letter from CareFirst in late October saying that our policy would be cancelled, because it didn’t conform to Affordable Care Act requirements. ...I stopped procrastinating and got on the phone with CareFirst... First lesson learned: healthcare.gov is not the only balky system around.

Health economics and cognitive dissonance

PS: I will be talking about alternatives to Obamacare on Wed Dec 4 at the Cato Policy Perspectives event in Chicago.

After the ACA -- Crafting an Alternative to Obamacare

I gave a talk at Hoover, encouraging those of us who are less than fans to speak up and outline the alternative to Obamacare. Podcast here.

Repeal and status quo is not enough. We need to listen, and point out how a radically freed and competitive system will address the genuine concerns that motivate many to support the law despite its flaws -- preexisting conditions, health care for the poor, outrageous cost and so forth.

The essay "After the ACA" lays it out in some detail.  The talk is a lighter discussion of where we are, but emphasizes how sitting back and letting the ACA unravel will just lead to an even more expensive and incorherent system. Stand up and state the alternative.

The Next Obamacare Fiasco

Thousands Of Consumers Get Insurance Cancellation Notices Due To Health Law Change Kaiser Health News

Some health insurance gets pricier as Obamacare rolls out Los Angeles Times

Kaiser:

Health plans are sending hundreds of thousands of cancellation letters to people who buy their own coverage,...The main reason insurers offer is that the policies fall short of what the Affordable Care Act requires starting Jan. 1

Florida Blue, for example, is terminating about 300,000 policies, about 80 percent of its individual policies in the state. Kaiser Permanente in California has sent notices to 160,000 people – about half of its individual business in the state. Insurer Highmark in Pittsburgh is dropping about 20 percent of its individual market customers, while Independence Blue Cross, the major insurer in Philadelphia, is dropping about 45 percent.

LA Times:

Blue Shield of California sent roughly 119,000 cancellation notices out in mid-September, about 60 percent of its individual business. About two-thirds of those policyholders will see rate increases in their new policies....

Middle-income consumers face an estimated 30% rate increase, on average, in California due to several factors tied to the healthcare law. Some may elect to go without coverage if they feel prices are too high. Penalties for opting out are very small initially. Defections could cause rates to skyrocket if a diverse mix of people don't sign up for health insurance

This is interesting. Obamacare could actually increase the number of people without insurance, because you are not allowed to keep (consumer) or sell (insurance company) simple cheap insurance.

Mulligan on Obamacare Marginal Tax Rates

Casey Mulligan wrote a nice Wall Street Journal Oped last week, summarizing his recent NBER Working Paper (also here on Casey's webpage) on marginal tax rates.

What do I mean, tax, you might ask. Obamacare is about giving people stuff, not taxing. Sadly, no. Obamacare gives subsidies that are dependent on income. As you earn more, you receive fewer subsidies for health care, reducing the incentive to earn more. Casey tots this sort of thing up, along with the actual taxes people will pay.

Economists use the word "tax" here and we know what we mean, but it would be better to call it "disincentives" so it's clearer what the problem is, and just how painful we make it for poor people in this country to rise out of that poverty.

As you can see, the average marginal "tax" rate went up 10 percentage points since 2007, and about 5 percentage points due to Obamacare alone.

Going back to the working paper, I think this is actually an understatement. (Probably the first time Casey or I have ever been accused of that!)

Margins on Exchanges

A nice Bloomberg View by David Goldhill offers an Econ 101 lesson in incentives. Though the average subsidy rate to health insurance is limited, the marginal subsidy rate is 100% once consumers hit the income limits -- so many consumers have no incentive at all to shop for lower prices. In turn, this greatly lowers the chance that insurers will compete on price.

David:

Let’s take an example. A family of four at 138 percent of the poverty level ($32,499) has its premium capped at 3.29 percent of income or $1,071. The rest is subsidy. So, if the cost of a silver plan is $10,000, the subsidy for this family is $8,929. A family at 400 percent of the poverty level ($94,200) has to pay up to 9.5 percent of its income for a plan, or $8,949. So the same $10,000 premium carries a subsidy of only $1,051.

But now look at those two families from the insurer’s perspective. A $10,000 plan already costs more than the maximum amount either family would pay. If the insurer raises the premium to $10,001, both families get $1 in additional subsidy. If it raises premiums to $11,000, both families get $1,000 in additional subsidy. In other words, no matter how much an insurer raises rates, a subsidized household pays zero more.

Health Insurance and Labor Supply

I just ran across an interesting paper, "Public Health Insurance, Labor Supply, and Employment Lock" by  Craig Garthwaite,  Tal Gross and my Booth colleague Matthew Notowidigdo.

They study an interesting event

... In 2005, Tennessee discontinued its expansion of TennCare, the state’s Medicaid system. ... Approximately 170,000 adults (roughly 4 percent of the state’s non-elderly, adult population) abruptly lost public health insurance coverage over a three-month period.

The result was

a large and immediate labor supply increase....we find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage. 

A Ray of Hope? Hospitals Post Prices

I was intrigued by news stories of an Oklahoma hospital posting prices for surgery -- prices far below those offered by its competitors. Here is the article and the surprisingly low price list.  Several competitors felt the pressure to slash and post prices.

Doctor-owned hospitals

In writing about the ACA and our health-care problems, I started to think more and more about supply restrictions. In every other industry, costs come down when new suppliers come in and compete. Yet our health-care system is full of restrictions and protections to keep new suppliers out, and competition down. Then we wonder why hospitals won't tell you how much care will cost, and send you bills with $100 band aids on them.

In that context, I was interested to learn this week about the ACA's limits on expansion of doctor-owned hospitals. The Wall Street Journal article is here, and I found interesting coverage in American Medical News. The text and analysis of the amazing section 6001 of the ACA is here

In astouding (to me) news, the ACA prohibits doctor-owned hospitals from expanding, and prevents new doctor-owned hospitals at all, if they are going to serve Medicare or Medicaid patients. From WSJ

Surprising candor at NYT on health care

The New York Times published a surprisingly sensible piece on health care on Sunday, "The health care benefits that cut your pay" by David Goldhill. A sample

We manage health care as if our needs were always urgent and unpredictable, ignoring how deeply this industry is integrated into our lives, with a vast amount of care now devoted to treating ongoing, chronic conditions.

Our system takes resources from all of us, pools the cost of certainties disguised as risks, extracts enormous costs of administration and complexity and then returns — to almost all of us — a fraction of the money we’ve put in.

Try to imagine what homeowners’ insurance would look like if we expected everyone’s house to burn down and then added coverage for each homeowner’s utility bills and furniture wear-and-tear. This would be insanely expensive without meaningfully reducing anyone’s risk. That, in short, is how health insurance works.

...Traditional health experts may repackage their ideas, but they are never discouraged by past failure. So the new Accountable Care Organizations are a reinvention of H.M.O.’s. The Independent Payment Advisory Board is the new Medicare Payment Advisory Commission, or MedPAC. Bundled payments are the new Prospective Payment System.

We often see some early benefit from the introduction of new ideas, but over time such initiatives are always subjugated by our system’s nefarious economic incentives. Implement cost control reforms and watch providers circumvent new rules and guidelines. Reduce reimbursement rates for procedures, and witness providers expand the definition of required services. Convert fee-for-service reimbursements into bundled payments, and soon more severe diagnoses are given. Attempt to use government buying power, and see providers turn to lobbyists to keep prices up. We are approaching a half-century of fighting this losing battle

...

Here’s a completely different idea, one that might actually work. Let’s give every American health insurance, but only for truly rare, major and unpredictable illnesses. In other words, let’s cover everyone but not everything. It would take a generation to transition fully to such a system, but eventually the most routine and expected medical treatments, from checkups and minor illnesses all the way to common chronic conditions and expected end-of-life care, would be funded from our individual health savings; only the most major needs — for example, cancer, stroke and trauma — would be paid out of insurance.

Defining insurable events more narrowly and enabling Americans to use the premium savings to build health savings would reduce the distortions inherent in our insurance approach. Most importantly, it will also compel providers to compete on the basis of price, quality and service, as they meet the one force that creates real incentives for good performance, innovation and safety: the consumer.

Sheer poetry, in few words accomplishing what took me many pages of "After the ACA."  Newspapers often publish contrary views to show they are balanced (or so a WSJ editor once told me when I complained!) But that this can even get aired at the Times is pretty remarkable.

Billing codes

A while ago, an acquaintance saw her dermatologist for an annual check. She said, "oh, by the way, take a look at the place on my foot where we removed a wart a while ago." The doctor looked at her foot, said everything is fine, then finished the exam. Checking the bill, there was a $400 extra charge for the wart examination!

This nice audio story from NPRs "third coast festival"  tells the story of billing codes. Answer: As insurers and medicare/medicaid reduce payment for services, doctors respond by writing up every billing code they legally can. There are whole conferences devoted to billing code maximization. It's a lovely unintended-consequences story. Good luck with that "cost control."

The piece quotes the Institute of Medicine that there are 2.2 people doing billing for every doctor, at a $360 billion dollar cost. I couldn't find the source of these numbers. If any of you can, post a comment.

Of course, being NPR, the program leaves the impression that all this will be fixed in our brave new world of the ACA. But it wasn't even that heavy handed on the point. Perhaps experience is gaining on hope.

Health economics update

Russ Roberts did a podcast with me in his "EconTalk" series, on my "After the ACA'' article. Russ also put together a really nice list of readings with the podcast, at the same link.

I also found this very informative editorial "What the world doesn't know about health care in America" by Scott Atlas. It goes a good way to answering the persistent "What about how great health care is in Europe" comments. Some choice quotes:

Affirming 2005’s Chaoulli v. Quebec, in which [Canadian] Supreme Court justices famously concluded “access to a waiting list is not access to health care,” [my emphasis] countless studies document grave consequences from prolonged waits...

I love this little quote, because the deliberate confusion of "insurance" with "access" has long bugged me about the US debate.

Predictions

I did a short spot on NPR's Marketplace this morning (also here). The announced topic was what I thought would happen to economic policy after the election. Jeff Horwich, the interviewer wanted to stitch together a story about everyone is going to get together and play nice now, which seemed like a fairly pointless line to pursue. What "I would do" is now off the table, and I didn't think it worth arguing with Jared Bernstein's repetition of Obama campaign nostrums.

But it gave me a chance to put some thoughts together. I usually don't predict anything, because I (like everyone else) am usually wrong. But I'll make an exception today

Forecast in three parts: The sound and fury will be over big fights on taxes and spending. They will look like replays of the last four years and not end up accomplishing much. The big changes to our economy will be the metastatic expansion of regulation, let by ACA, Dodd-Frank, and EPA.  There will be no change on our long run problems: entitlements, deficits or fundamental reform of our chaotic tax system.  4 more years, $4 trillion more debt.

DeMuth on Obamacare

Christopher DeMuth has a nice Oped in the Wall Street Journal. Thesis: Obamacare is the big question for the election.

He makes two points that I haven't seen expressed this well before, including by me despite 25 pages of trying:

Debate with Goolsbee

Last Tuesday, Glen Weyl asked me to debate economic policy issues in the current election with Austan Goolsbee, in the famous "rational choice" workshop. Here's my 10-minute opening statement. Austan did a great job in a tough audience.

Economic Policy and the Election: 

Growth is our number one economic challenge. Here’s how recoveries are supposed to look. We get a period of very strong growth rates, until the economy recovers to “trend,” or potential.”

Here we are. Not only have we failed to bounce back, growth is slowing down. We seem headed for a permanent loss of about 8% and sclerotic 1-2% growth.